Will the free Africa trade deal serve as big stimulus package?

Managing Director

Canaan Capital Limited

What you need to know:

It is worth noting that African countries trade more value-added products among themselves, unlike their exports to the rest of the world, which are mainly commodities.
The Africa Continental Free Trade Agreement is expected to lift 30 million Africans out of extreme poverty and raise incomes of nearly 68 million.

“Let’s make the African market be the market for Africans: produce in Africa, transform in Africa, consume in Africa.

Let’s produce what we need and let’s consume what we produce instead of importing. Burkina Faso came here showing the cotton fabric produced in Burkina Faso, weaved in Burkina Faso, sown in Burkina Faso, to dress citizens of Burkina Faso.

Our delegation and I are dressed by our weavers, our peasants. There is not a single thread coming from Europe or America. I would not do a fashion show, but I would simply say that we must accept to live as African – that is the only way to live free and dignified.”

These are the words of Thomas Sankara, the visionary former president of Burkina Faso in a speech given at the 1987 Organisation of African Unity (OAU) summit held in Addis Ababa.

His main point summed up; Buy Africa to build Africa.

Although coming almost 30 years late, Sankara’s dream is finally shaping into reality through the recently ratified Africa Continental Free Trade Agreement (AfCFTA).

Trading under the pact that was originally planned for 1 July 2020 but delayed because of the Covid-19 pandemic, will now begin next month according to the African Union.

The objective is to reach 50 percent intra-African trade between now and the year 2030.

In 2016, intra-African exports made up 18 percent of total exports, compared to 59 percent and 69 percent for intra-Asia and intra-Europe exports, respectively.

What' is important, the deal comes at an opportune time when most African governments need a stimulus package at a time of an unprecedented crisis.

The big question is; will the AfCTA agreement serve as the much-needed catalyst to accelerate post-covid-19 economic recovery? Yes. Why?

First, the deal is poised to increase employment opportunities and incomes according to the World Bank - it’s expected to lift 30 million Africans out of extreme poverty and boost the incomes of nearly 68 million others who live on less than Sh550 a day.

Secondly, with the linear reduction of 90 percent of tariff lines - leading to the elimination of tariffs on intra-regional imports over a period of five years (10 years in the case of countries classified by the United Nations as “least developed countries”) - the agreement is expected to increase Africa’s exports by Sh56 trillion, mostly in manufacturing.

It is worth noting that African countries trade more value-added products among themselves, unlike their exports to the rest of the world, which are mainly commodities.

Lastly, it is estimated that the deal would boost wages for both skilled and unskilled workers—10.3 percent for unskilled workers, and 9.8 percent for skilled workers.

To drive the post-Covid-19 economic recovery, it calls for the region to implement the deal in order to ensure the fruits of the agreement are realised.

While the pandemic has undoubtedly complicated the picture, the longer term benefits outweigh any short term delays or distractions. The AfCFTA indeed offers substantial opportunities for economic recovery.

Mr Mwanyasi is the managing director of Canaan Capital